Making innovation strategy succeed in a globalised world

Introductory remarks by Angel Gurría, OECD Secretary-General, delivered at the International Economic Forum of the Americas

8 June 2009, Montreal, Canada

Ladies and Gentlemen,

Innovation and globalisation have lately been blamed for the severe financial and economic crisis that we are experiencing. This misses the point. Both forces have produced immense wealth and social progress and, if properly managed, they will help us overcome the current crisis and build a stronger, cleaner and fairer global economy.

The OECD is developing an Innovation Strategy for the 21st Century, to foster economic growth and to tackle the major global and social challenges of our time: persistent poverty, unemployment, climate change, water management, and health care, especially as our populations age.

I would like to share with you a few reflections on the crucial role, the latest trends and the powerful potential of innovation, drawing from our upcoming Interim Report on the OECD Innovation Strategy.

1. Innovation: a key driver of growth

Innovation is a key driver of economic growth. In the last couple of decades, new technologies, new industries, and new business models have powered impressive gains in productivity and GDP growth. Many studies have found that R&D – the most narrow construct of innovation – has a significant effect on growth in real per capita GDP. Other studies have demonstrated the important productivity enhancing impact of information and communications technologies. Even after the bursting of the tech bubble in 2000, ICT continued to contribute 2½ percentage points of the growth of output in the UK, Finland, Sweden and the US between 2001 and 2006 – representing a third to a half of the gains. But, it’s not just about investing in new technology like Blackberries – much as I love the tyranny of mine. It is also about:

undertaking complementary innovation to adapt these technologies,

changing how we organise our working methods and business structures, and

improving our skills to fully reap the benefits of the technology.

These “intangible” assets, have enormous strategic value for companies and countries. And, investment in these “intangibles” has become as important as that in traditional plant and equipment, accounting for 5 to 12% of GDP in many OECD countries.

2. Changing change: innovation is evolving

Innovation is a core condition to the competitiveness of businesses. We have seen business expenditures on R&D steadily increase over time, with some countries like Israel, Japan, Korea and Finland making big strides as business R&D exceeds 2.5% of their respective GDPs.

As innovation becomes central to the modern firm, pressure mounts to reduce its cost and risks, through collaboration with others and tapping into expertise already available around the globe.

The interactions among players who innovate today look a bit like an airline’s global routing map:

Over a quarter of Canadian patents have foreign co-inventors,

R&D spending by foreign affiliates of multinationals represent more than half of all business R&D in Ireland, Belgium and the Czech Republic,

Over half of Silicon Valley start-ups between 1995 and 2005 had at least one immigrant as a key founder.

Innovators connect halfway across the planet, through global value chains, through networks and brainstorm in real time enabled by the growing ubiquity of the Internet. Networks are the ultimate form of the new governance. No borders; no limits; no rules; little or no cost; constant iteration and interaction.

Knowledge is a key asset in these global networks, and we are witnessing the development of a new type of market: knowledge markets. Using a number of mechanisms and platforms, buyers and sellers can pool or trade data, information, contacts and know-how. Receipts from international licenses of technology have increased by a factor of 10 over the last 25 years.

Innovation has broadened across many dimensions:

across borders as new emerging players like China and India have led to a shift in the global topography of innovation networks. Since 2005 China has increased its R&D spending at a stunning annual rate of 19%.

Across sectors where it is apparent that innovation is important not just to high-tech enterprises, but to services which represent the bulk of our economies, including public services; and

Across institutions, encompassing a broad array of actors. Today, innovation goes far beyond the confines of research labs to users, suppliers and consumers everywhere ─ in government, business and non-profit organisations.

Governments that understand these new trends will make the most of innovation policy and will be able to use this force to help their countries exit the crisis and bring about a greener and more sustainable type of growth. In its final version to be launched next year, the OECD Innovation Strategy will help governments devise policies that keep pace with these changes and promote productivity, competitiveness and growth.

3. Innovation policy: inventing a better world

Innovation must be harnessed to tackle global problems effectively and efficiently. Innovation in green technologies, for example, can help us fight climate change without sacrificing growth. But getting solutions to market will require the right incentives to spur innovation and development. Fortunately, there is evidence that innovation in climate change mitigation technologies is accelerating.

Innovation can also help us speed up social improvements in developing countries. It’s a powerful tool for combating infectious diseases and producing clean drinking water, for example. The ability to address these increasingly urgent issues depends on stronger innovation and new forms of international collaboration.

Different global challenges naturally call for different approaches; nevertheless, some common strategies are emerging to accelerate scientific progress and diffuse innovation as widely as possible:

we need greater involvement of the private sector, non governmental and philanthropic organisations;

we need to build greater capacity for innovation in developing countries, including through technology transfer; and,

to do these, we need to devise new financing mechanisms.

As the landscape for innovation continues to shift, how can policy adapt? I have already mentioned a few avenues for policy in my remarks, and these will be developed more fully in the Innovation Strategy in the coming months.

One thing is certain: developing a coherent governance strategy requires coordination at the local, regional, national and international levels, across a wide range of private and public actors. It is a difficult challenge.

Let me also mention one thing that Governments should not do in this world where innovation is increasingly global – and that is to engage in protectionist behaviour – even with a fig leaf of being “green” or “strategic.” In this new collaborative, open, innovative environment – the gains from the clever application of someone else’s technology can be as important as developing the technology yourself.

Innovation is the “magic powder” that can turn our countries, cities and rural areas into attractive, dynamic and dignifying places to live and invest. In these very difficult times, it is crucial that our policies are tuned and oriented towards creating the best possible environment for innovation to flourish and spread. An economy is a living system. That’s why policy-makers must think more like gardeners than mechanics.

Although recovery measures to fight the current economic crisis have already been decided, the hard work of implementing them, of rebuilding our damaged economies and restructuring them for sustainable growth has barely begun. The key to success will be our ability to innovate. Let me repeat it: the key to success will be our ability to innovate. This is not a policy option; it is an imperative!

I therefore congratulate the Montreal Conference for putting innovation front and centre; and I look forward to sharing with you both the interim results today, and the complete and final version next year of our OECD Innovation Strategy for the 21st Century – one that will lead to a stronger, cleaner and fairer global economy.